I litigated for over twenty-five years in multiple jurisdictions around the country. I now am a full-time neutral. A big part of mediation training was learning about the psychology of conflicts and how to best serve as a peacemaker. In my advanced family law mediation training we focused on empathy and addressing the emotional aspects of disputes. All things that my litigator friends find to be too “touchy feely.” That said, the plaintiffs’ bar has embraced psychology, invoking the reptile theory as a way to tap into juries’ anger and obtain larger awards. This article underscores that psychology’s role in the law is not narrowly limited to understanding the dynamics of conflict resolution or jury dynamics, but also significantly impacts the very essence of what attorney’s do on every matter – determine the value of their case. This article discusses a well-known game show to highlight some lessons from psychology and their application to attorney-negotiators and mediators.
When I was in law school, the prevailing wisdom was that people acted rationally to maximize their financial self-interest. Specifically, those who accepted “law and economics” viewed the law as a tool to promote economic efficiency. If people did not act in their financial self-interest it was because they lacked perfect information or there was a distortion in the market or applicable legal rules. Being from Chicago, I was familiar with the Chicago school of law and economic thought led by the former Seventh Circuit Justice Posner.1
In every case the decision-makers are unique, but they are all human. Psychologists have researched why humans often make poor decisions. We have to make thousands of decisions every day and would drive ourselves crazy if every time we analyzed all possible factors and outcomes. If we did, we would never have time to pick a pair of socks or gas station. For most decisions we employ heuristics, or short-cuts. While it is not the end of the world if we pay $.02 more a gallon or wear socks that are a little too thick, it is important to try to avoid taking short-cuts when making important decisions. Psychologists have studied the numerous cognitive illusions that adversely impact decision-making. The bottom-line is people often make bad decisions even when they possess complete information, not because they are acting irrationally or are stupid, but because the old adage is often correct – to err is human.
In the last two decades inter-disciplinary interest in psychology has increased. According to Keith Law, the seminal book on cognitive psychology and behavioral economics by Daniel Kahneman, Thinking Fast and Slow, is now a must read in front offices across Major League Baseball.2 Doctors are more aware that diagnostic errors while reviewing radiological images are often due to cognitive illusions, such as anchoring or confirmation bias. For example, anchoring can lead a radiologist to fixate on the first sight diagnosis despite inconsistent subsequent data. Likewise, actively searching for confirmatory data rather than an alternate explanation is an example of confirmation bias.3
A. News Flash: Lawyers are People, Too!
Many lawyers have yet to embrace psychology, often believing that a rigorous legal analysis of a case insulates them from the pitfalls that plague the average person. However, that assumption is not supported by reality. Several studies of settlement opportunities show that represented parties frequently turn down settlement offers as good if not better than the ultimate trial outcomes. Specifically, between 61% and 65% of plaintiffs rejected such offers while defendants made “mistakes” in 25% of cases.4 While the significance of these studies can be debated, at a minimum they demonstrate that lawyers do not always correctly evaluate cases and while there are many potential reasons, one simple explanation is that lawyers, like other humans, occasionally engage in faulty judgment.
For example, studies show that just as anchoring can skew the perception of radiologists, it also impacts lawyers. In a famous study Amos Tversky and Daniel Kahneman used a random wheel to show the impact of anchoring. They asked different groups questions about the number of African countries in the United Nations. One set answered after the wheel landed on ten (10) and the other on sixty-five (65). The first group knew 10 was too low and the second knew 65 was too high, but the group that saw the lower number had lower answers than the group that saw the higher number.5 It is easy to try to discount anchoring by pigeon-holing it to situations where people are ignorant of the question (most Americans do not know how many African countries are in the U.N.) or generally unsophisticated. So, what about Federal judges? A study demonstrates that they too are the victims of anchoring. Two sets of judges were asked to value a case in which only damages were at issue. All judges received the identical information. However, one set of judges were asked to rule on a motion to dismiss due to the lack of diversity jurisdiction based on a frivolous claim that the multi-million dollar case did not exceed the $75,000 amount in controversy requirement. The group that needed to rule on the jurisdictional motion (which was routinely denied) ultimately valued the case significantly lower than the judges that did not. Just like a random spin of a roulette wheel, the judges were materially impacted by a $75,000 figure that was wholly irrelevant to the case’s value.6 Even impressive legal minds can be tricked by cognitive illusions and when not explicitly discussed they impact numerous cases and settlements.7
While lawyers are reluctant to even consider whether cognitive illusions have impacted their decision making, many have confided with this mediator that they simply do not like math. Mediations involve competing views of the case. Typically there are disagreements concerning the facts, the law and/or what will happen at trial if the case is not settled. Most mediations of commercial disputes devolve into a discussion about numbers. Calculations are often employed to explain why a plaintiff cannot accept less than X and why a defendant will not pay more than Y. While there is some truth to the sentiment that valuing a case is an “art” it does require a basic understanding of probability. Valuing a case involves estimating probabilities of outcomes and often requires an analysis of how the outcome of one issue (say a discovery or venue dispute) impacts the overall evaluation of the case. Trusting one’s gut often involves making assumptions that are impacted by cognitive biases.
B. Lessons from a Game Show
Most people are familiar with Let’s Make a Deal. In that show Monty Hall showed a contestant three doors. Two of the doors concealed goats and the other a brand new car. The rules were simple. Monty would ask you to choose a door. Then Monty would reveal a goat behind one of the two remaining doors. Afterwards, Monty asks you whether you would like to switch. Contestants looked to the audience who shouted encouragement and advice. Study after study shows that about 90% of people reject the offer to switch doors and remain with their initial selection. However, switching doubles your chances of winning the car.8
Wait, what? If your reaction is that there cannot be any advantage to switching, you are not alone. The Monty Hall problem has confounded people for years. In 1990 when Marilyn vos Savant (who purportedly had one of the highest IQs in the world) noted in Parade Magazine that there was an advantage to switching doors, thousands of people – including prominent mathematicians – insisted that she was wrong.
There have been numerous books and articles analyzing why the Monty Hall problem is so difficult for people to grasp. The findings from these studies and the techniques employed by math teachers to explain some of the cognitive illusions have practical applications for lawyers and mediators. As an initial matter, let me try to explain why you should always switch. The Monty Hall problem presents a finite set of possibilities for the distribution of the two goats and one car, as follows:
Door #1 Door #2 Door #3
Goat Car Goat
Goat Goat Car
Car Goat Goat9
Under the rules of the game, after you select a door Monty must reveal a goat. Let’s assume you select Door Number 1. The highlights below indicate when Monty is forced to reveal a goat:
Door #1 Door #2 Door #3
Goat Car Goat
Goat Goat Car
Car Goat Goat
This demonstrates two crucial facts. First, in selecting Door Number 1, there was a 1 in 3 chance that you initially correctly selected the car and a 2 in 3 chance that your door hid a goat. Second, under the rules of the game, in both situations in which your original selection was one of the goats, after Monty reveals the other goat, the remaining door must now conceal the car. If the player switches in those circumstances, she will win. Thus, in 2 out of 3 scenarios, when you switch you will win the car. Switching doubles the likelihood of winning.10
C. All Doors are Equal, But Some Doors are More Equal than Others
As a mediator my job is not to “correct” parties’ decision-making processes. Rather, I attempt to ask questions that raise issues in an effort to make sure that each side fully appreciates their litigation risks. The Monty Hall problem is difficult because it taps into many cognitive illusions. Most people quickly note that there are only two outcomes - a car or a goat - and there are only two remaining doors – the one initially chosen and the remaining door - and incorrectly conclude that the door they selected now has a 50% chance of hiding the car. The equiprobability bias demonstrates that humans are hard-wired to judge the probability of random events as equal and make decisions using this heuristic.11 Interestingly, the older we get the more impacted we are by the equiprobability bias. A Belgium study of the Monty Hall problem shows that primary school students (about 10 years old) were more likely to act rationally (i.e. switch) than secondary school students (about 15 years old) who were more likely to switch than university students (about 19 years old).12
When Marilyn Vos Savant was challenged by thousands of Parade magazine readers who disputed that there was an advantage to switching, she posed an alternative scenario that is also used by mathematics professors. What if there were more doors? Let’s say that there are 1,000,000 doors. You select door #52,783 (because that is, after all, your favorite number). Monty then reveals 999,998 goats and only two doors remain. It is the exact same concept, but virtually everyone switches. Studies (including the Belgium study cited above) show that if you increase the number of doors people more readily understand the advantages of switching. People appreciate that they only had a one in a million chance of being correct initially and do not seem to believe that the fact that there are only two doors left means that they correctly chose the car in the same way they do when there are only three doors. As Orwell understood, some doors are more equal than others.
This underscores a truism of mediation - asking certain questions helps people appreciate their risks and options. With respect to the Monty Hall problem other questions could also force people to reevaluate their assessment that there is no advantage to switching. If someone believes that there is a 50-50 chance that the car is behind the door they initially selected, asking them how a change in the rules would impact their analysis. What if when Monty opens a door he could reveal the car and if he does the game ends? Under those rules, what happens when he reveals a goat and he gives you the opportunity to switch? This wrinkle forces the person to acknowledge that the mere fact that there are only two doors remaining does not necessarily mean that the door you selected (which only had a one in three chance of concealing the door) now has an equiprobability of hiding the car. In fact, it is only under the modified rule change that your chances of having selected the car have increased. Posing this question allows many people to realize the error in their assumptions under the original rules.
These questions force people to test their assumptions and avoid making decisions by employing heuristics or their gut. The questions also force people to think about conditional probability. Specifically, how does the revelation of the goat behind one of the unselected doors impact the likelihood that the car is behind one of the other two doors. After Monty reveals the goat, people instinctively exhale, look at the two remaining doors and allow confirmation bias to convince themselves that the chances that their selected door has the car just increased from 33% to 50%. But, as discussed above, we knew Monty was going to reveal a goat so his doing so provides absolutely no new information about the door we initially selected. However, asking questions about rule changes helps people focus on what information we learned about the unselected doors. Switching maximizes your chance of winning because Monty provided us with information about the other remaining door. Switching becomes apparent once we realize that Monty is being forced to show us where the car is if we have not initially selected it. In footnote 9, the calculation using Bayes theorem demonstrates this. While lawyers do not need to have even ever heard of Bayes theorem to settle cases, being open to a mediator’s questions based on probability and psychology can help ensure that decisions are not based on faulty assumptions.
D. It is Not Just What you Ask, It is How you Ask it
Framing impacts people’s perception of probability. Take another math riddle: Mr. Smith has two children. At least one of them is a boy. What is the probability that both children are boys? Again, most people succumb to the equiprobability bias and say it is 50-50. In fact, 85% of MBA students with statistical training erroneously believe as much.13 Most people focus only on the second child, but let’s frame the options differently. Assuming the gender of one child has no impact on the other, there are four equally likely outcomes listing the genders of the older and younger children: (1) Girl, Girl; (2) Girl, Boy; (3) Boy, Girl; and (4) Boy, Boy. We know option one is off the table because Mr. Smith has at least one boy. Looking at the other three scenarios, and knowing Mr. Smith has at least one boy, shows that in 2 out the 3 scenarios the other child is a girl. Thus, there is a 67% chance that the other child is a girl. Significantly, when the question is reframed by noting Mr. Smith says, “I have two children and it is not the case that they are both girls” and then people are asked what is the probability that both children are boys, more people answer the question correctly. Reframing the question by introducing groupings helps people fully analyze the problem.
Another study shows the power of framing by asking participants to estimate the probability that “Sunday will be hotter than any other day next week” or that “The hottest day of the week will be Sunday.” Participants tend to view the first presentation as 50-50 based on the partition between two possible events (Sunday is the hottest day or Sunday is not the hottest day), whereas respondents to the second presentation more readily understand that there are seven possible events.14 Framing an issue differently can help people avoid succumbing to the equiprobability bias.
One of the reasons valuing cases is difficult is that not everyone thinks about probability in the same manner. Take a weather forecast. Most Americans interpret a 30% chance of rain to mean under the same factual conditions it will rain 30% of the time. Europeans are much more likely to believe that the forecast means that it will rain in 30% of the geographical area referenced in the forecast.15 Furthermore, studies show that some people understand probability better when framed as frequency (how many times out of 10) as opposed to probability (what percentage).16 Sometimes, simply restating the likelihood of an event in a different manner might cause a party to reconsider their position or better understand their opponent’s perspective.
Mediators need to be careful with how they frame and ask questions. By bringing up potential rule changes, the questions about additional doors or rules forces the person to compare scenarios. However, under the phenomena of option devaluation, “people tend to find a particular option less attractive when considering among other options than when it is considered in isolation.”17 When used properly, reframing questions and providing other benchmarks can help a mediator explore whether a party’s position might be softened, but it is important not to ask questions that further entrench a party’s position.
E. Not Just a Math Problem
At the risk of burying the lede, the Monty Hall problem is not just a math teaser. That most people incorrectly fail to see a benefit to switching is one thing, but if most people think that there is no difference between staying and switching, why do studies consistently show that 90% of people stick with their original selection? Why not switch if it does not matter? Something else is going on.
The Monty Hall game is so difficult because multiple illusions point the player in the wrong direction. We briefly already touched on anchoring in which it becomes difficult to shift from an initial position and there is no question that confirmation bias is also at play.18 Two strong illusions that contribute to people sticking with their initial selection are the endowment effect and the status quo bias.19 The endowment effect describes the phenomena in which people demand more to give up something they already possess than they would be willing to pay to acquire the same item.20 Once people select the door, it is not door number one, it becomes their door. If someone selected door number one because one is their favorite number that did not change after the goat behind another door was revealed. Studies show that the endowment effect is powerful and it helps explain why if people believe that there is no benefit to switching, they likely won’t.
Studies show that the endowment effect is very personal and contributes to a related phenomena, the illusion of control. If someone else initially selects the door and then a second person is offered the opportunity to switch, they do so at a higher rate.21 They lack the same attachment to a choice made by someone else. This raises some delicate issues for a mediator. One of the quickest ways a mediation can go South is if the parties think that a mediator is trying to drive a wedge between the lawyer and the client. Mediation is about self-determination. Parties ultimately make the final decisions and in large commercial matters typically do so with input from their attorneys. That said, as a mediator, I want to know who initially valued the case (sometimes it is the client, sometimes the attorney), when, and if the valuation has been changed. The first question could uncover endowment effect and illusion of control issues, the last one, anchoring.
Finally, the status quo bias is another reason people stick with their initial selection. According to studies, people feel worse if they affirmatively take action and get a bad result than if they passively wind up with the identical bad result. Jason Rosenhouse provides the following example: You have an investment account worth $10 of stock in Company A. You are thinking of selling that stock to buy stock in Stock B. There are two scenarios: (1) in which you sell Stock A, buy Stock B and then Stock B goes becomes worthless and you lose $10; or (2) you never sold Stock A, but then company A goes bankrupt. Either way you lose $10, but studies show you are more upset if you affirmatively took the action of selling Stock A.22 These emotions clearly contribute to the high percentage of people that are fine with keeping the door they initially selected.
The status quo bias can impact the dynamics of mediation. If parties pessimistically believe that no settlement will be reached, they will be less likely to make any significant move. If the mediation fails, they will have preferred not to have acted affirmatively to break the inevitable impasse. This explains why some mediations move more slowly at the beginning. As the mediator, I try to be optimist (in a pragmatic way) and encourage parties not to fall prey to the status quo bias by reminding them that they are seeking to find a better alternative to the status quo.
Lawyers and mediators alike can benefit from a better understanding of psychology and its impact on decision-making. Mediators should think whether reframing issues or presenting alternatives would assist the parties in appreciating their litigation risks and move the negotiations forward. In doing so we might make Monty Hall proud and make more deals.